Betmakers Technology Group Ltd

ASX:BET

Earnings Call Transcript 2023-Q2

[Jane Morgan, executive]

So good afternoon, and thank you for joining the Betmakers Technology Group Limited Q2 FY 2023 Results Briefing. I'm Jane Morgan, the Investor and Media Relations Manager. And from this morning's ASX release, investors will know that there have been several Board and management changes.

So today, I am joined by our Executive Chairman and President, Matt Davey; our Non-Executive Director, Nick Chan; our Chief Growth Officer, Todd Buckingham; our CEO, Jake Henson; and our CFO, Anthony Pullin. The team will be providing you with an overview of today's Q2 FY 2023 results as well as engaging in a Q&A session. [Operator Instructions]. Todd, I'll hand over to you.

[Todd Buckingham, executive]

Yes. Thanks, Jane, and welcome to our quarterly results and management update. There's obviously a lot to cover off with the foresee and company achievements for the quarter, along with the announced Board and management changes, which have occurred after our strategic review. Pretty one that followed the story, you'd understand that we have been in a very strong growth phase, opening up opportunities, both domestically here in Australia and also globally with our footprint now in many locations around the world.

The focus for our core business is now going to be on optimization and execution. While the global opportunities we've created and continue to develop, we'll now operate under a more structured and focused and agile team. I'd like to congratulate Jake Henson on his promotion as CEO. He will do a fantastic job, and I look forward to working with him in the years ahead. I'd also like to thank Nick Chan for his time as Chairman, for your support to me and in my time as the CEO and obviously his commitment to the company over the years. To the shareholders that have been here from the start and helped to build the company to where it is today. Thank you for continued support to me personally and your support to the company through good times and bad, and I look forward to the wins ahead.

And while I'm signing out as CEO, I still remain 100% committed to the business and the company, and we look forward to delivering on the global opportunities that we've created and continue to open up. So firstly, today, we'll take you through the quarterly highlights and financials along with some operational updates. And then we can open up for some questions in regards to the next phase and the management changes that we have implemented to capitalize on these opportunities over the next 12 to 24 months.

So with that, I'll hand over to Jake, who will cover off on the highlights from our previous quarter. Our new CEO, Jake Henson.

[Jake Henson, executive]

Thanks, Todd, and thanks for everyone for joining. Yes, as mentioned, I'll run through some of the highlights from the quarter before Anthony will take you through a bit more of the detailed financial side. So the key take away the top was record cash receipts for the quarter, which was up 13% on the previous period to $26.9 million. We obviously launched a Tier 1 brand into the Australian market here in Australia, underpinned by our new Betmakers next-generation technology. Over time, this technology will come to backbone to what we do in global markets, on the platform and trading operations side, which is really exciting.

We had also the successful launch of the Global Tote hub by our ordinary license is now operational with two key customers. And obviously, a key focus at our upcoming half will be to grow upon this area, which we'll touch on later. We had the acquisition of punting form, and this is primarily to bolster NTS and pricing capabilities and also to enhance our product suite for our pari-mutuel and premium customers globally.

We announced a deal in December around racing.com and the Victorian and South Australian thoroughbred vision. In addition to that, we've also got to do with growing and race in New South Wales to bring on that streaming to our platform, which will enhance what we offer to the Australian market, those existing platform and NTS customers, and we look forward to rolling that out over the next quarter.

In December, we also launched fixed-odds in Jamaica at Caymanas Park, the first fixed-odds betting system launched in the Caribbean, on track at this stage in the signs in terms of handle alongside the pari-mutuel are very encouraging. For us, our next step is to roll out the retail venues, which airing as we speak. And from the digital offering, so the mobile and desktop offering.

And finally, I think the big one to call out as a business was our ISO certification. For those that don't know, this is a big lift to get done because it's basically the globally recognized stamp in terms of governance, risk mitigation and security. And as a business, not only do we think it was essential to where we are now, you think it's an essential piece of taking us to the next level, putting us in a position where we can do big deals with Tier 1 customers. And those customers can have the comfort that we have the right systems and processes internally together deal with everything that comes with taking on business of that size. We completed the quarter's closing cash balance of $61 million.

And with that, I will hand over to Anthony for a little bit more detail on the finances.

[Anthony Pullin, executive]

Thanks, Jake. As Jake mentioned, I'll run through the Q2 4C in a little bit more detail. I think between Q1 and Q2, we're seeing sort of consistent themes in what's coming through those operational cash flows. Both as Jake mentioned on the cash recess from customers, it was a record quarter for us with $26.9 million in receipts, which is up 13% on Q1 and 9% on the prior year.

From these receipts, I think we've seen continued strong receipts from our platform to Managed Trading Services division as well as from our GRM division around the content distribution. Going back to where was at July this year, we acquired the Penn National content distribution over the last 6 months or the first 6 months of FY '23. We sort of gradually built up the rollout of that, and we're starting to see some of that growth in Q2 cash receipts results.

As I've said, from a, I guess, a quarter-on-quarter perspective, fairly consistent Q1 with about $5.9 million in net cash operational outflows for the quarter. For us, there's a bit of noise in there. There's a few one-off items. There's still some residual step payments around tax and super we've got annual charges, licensing fees, insurance premiums like. But fundamentally, for the last first 2 quarters of FY '23, we've seen a sort of inflated cost base, which has been largely driven by the investment we've been making as a company. You're getting some of these new operational products into the market, namely the NextGen platform, which is powering better and then also other opportunities like the Global Tote hub.

So while it's been a relatively expensive 6 months for us, we're quite happy with the operational gains that the company made in that time and it puts us in quite good position for capitalizing on growth going forward. I guess, as announced in this morning's announcement, the company is now also focused on normalizing that cost base and then shifting forward to positive operational cash flow. We've already made some pretty good gains in terms of cost down and normalize at cost paid, but it will remain a high priority for the company and the management to continue to work towards that. While some of the operational -- some of these revenue items start to materialize in the future.

I think lastly, as Jake touched on, we finished the quarter with $61 million in cash and no debt. So we're in pretty positive position from a balance sheet perspective.

And I'll now hand across to Nick Chan to run through some of the management changes.

[Nicholas Chan, executive]

Thanks, Anthony. We announced some changes today that the Board, obviously, working with management, have concluded that they restructure to create absolute clarity and focus to deliver growth the growth plans for our shareholders would be the best way forward for the company.

These changes are broadly Matt Davey appointed to the Board in the role of Executive Chairman, and his role will be to provide strategic direction, oversight and prioritization of our strategy. Myself will remain -- I myself will remain on the Board as a Non-Executive Director. And Todd Buckingham moves from his role currently as CEO to Chief Growth Officer, with a focus on developing and executing on our international opportunities and specifically our growth opportunities. And Jake Henson is promoted from COO to CEO and his focus will be on driving the operational excellence of the business and optimizing profitability in the businesses that are requiring at the moment, scale to deliver.

Let me introduce and congratulate and welcome back Matt Davey now as President and Executive Chairman.

[Matthew Davey, executive]

Thanks, Nick. Look, I couldn't be more excited to be rejoining the business. I think the company is in Rude Health with over $100 million a year in revenue and net cash balance on the balance sheet and zero debt, I think the company is incredibly well positioned. We have the ability to be able to drive growth on both a domestic and international platform, and the team have done a wonderful job of getting us into this position.

When I look around the world, and obviously, the macroeconomic environment has changed. The cost of capital has increased. I think it's now very prudent on management to drive operational efficiencies into the business, and I'll be working with the team to do that. In my experience, when a company goes through this rapid growth as the company has experienced over the last 3 or 4 years, it's never in a straight line. And that often from time to time, opportunities for us to tighten up how we run the business and improve the operational discipline around how the company is structured.

That said, we're not here just to drive operating margin. I think the broader promise of the business is on the international growth. And those opportunities are as strong and present today as they ever have been. I think Todd and the team have a phenomenal opportunity now to really lean into those opportunities without any distraction from the rest of the business. So I'm very excited about the structure that we have achieved today. I think the support of the Board to get us here has been fantastic, and I look forward to working with both the Board and the management to deliver fantastic results for you, our shareholders.

With that, let me hand back to Jane.

[Jane Morgan, executive]

Thank you, gentlemen, for the update. We've had quite a few questions come through, so I'm going to jump into them. I might give this one to you first. So the share price performance has been pretty disappointing. So what is the company going to be doing to address this?

[Matthew Davey, executive]

Thanks, Jane. Look, I think misery loves company. I think if you look around the world, most of tech-focused public companies have all suffered some form of price contraction. We certainly have not been immune to that. Some of that is justified and some of that is not. Our focus is to ignore the market. We do not care about day-to-day fluctuations in the stock price. Our core focus will be on the two kind of pillars that we have articulated today. One is operating core discipline and showing the operating leverage that the company can deliver. And coming from a revenue line of $100 million a year, I think there's a great scope around that.

And two, is executing on the growth opportunities we have, particularly around fixed odds betting internationally as well as the Global Tote. I think we have a phenomenal opportunity to deliver results there. And if we do that over the next year or 2, I think the market will reward us with the right price around our stock and the valuation of the company.

[Jane Morgan, executive]

Thank you, Matt. Just continuing on with that then. So given the current share price, you can do a bet an acquisition target, and this is why you've been brought on?

[Matthew Davey, executive]

Look, I think as a business, it's incumbent upon the directors to always entertain any kind of conversation that could be accretive to shareholders. That said, as I mentioned in the outset, the company is in rude health. We have a strong revenue line. We have zero debt. We have cash on the balance sheet. And my sense is, our focus is on our own organic growth and delivering on the opportunities we have today as well as looking at accretive opportunities if they present themselves. We are certainly not looking to shop the company. We think that there's enormous potential to deliver value creation just from what we have today from the collection of assets we have and where the company is positioned in this global market.

[Jane Morgan, executive]

Thank you, Matt. We've had this question come through a few times actually, just on the status of the share buyback. So with $61 million cash in the bank, so that make us share the best thing to do with the cash?

[Matthew Davey, executive]

Yes. In terms of the buyback, we are reviewing our capital allocation policy. I think we will get back to the market in terms of whether we move forward with that or not. At this stage, I believe that is on course.

[Jane Morgan, executive]

Another one that's come through quite a few times. So just in regards to the short interest, so it remains very high. with a large portion reportedly associated with people very close to the company. This webinar attendee is asked in particular or any executives or board members short in stock and what's the plan to address the issues?

[Matthew Davey, executive]

Look, I think for one, it's a policy, executives are not able to short the stock. So that -- we want to be very clear about that. Two, look, I've been in the pumping market for over 25 years. Short in comes and goes. I think from our perspective, we are going to ignore the noise and focus on delivering results. If we do our job, then we will watch the market and provide the support that we expect to see in return. I am not interested in day-to-day conversations about short interest. If we deliver, as we expect we will, that will not be part of the conversation we expect to have with the market.

[Jane Morgan, executive]

Thank you. Anthony, there's one for you. So $6 million operational loss for the last few quarters, so for the half, it's $12 million. How do you bridge the gap to break even to the second half? And do we expect it from revenue growth or cost out?

[Anthony Pullin, executive]

Yes, sure. Look, as we noted, we're working towards positive operational cash flows for the second half of this financial year. I think they're probably primary focus for ourselves is to bridge that gap from a cost perspective, at least initially. We've made some really good progress in the last 2 months or so. Really, we had a large cost pitch, one of a better word as we launch some of these products in that into spring panel, which is ordinarily an expensive time of year for us. So I think as a management team, we're focusing getting back to that breakeven point. through cost initiatives. And then as the guys have touched on, there's a number of growth opportunities more from a revenue perspective, which we hope will deliver a third gap time on that solid base.

[Jane Morgan, executive]

Thanks for that, Anthony. Jake, this one for you. So you mentioned the intense competition in the Australian wagering market is impacting on gross gaining revenue and therefore, Betmakers' revenues. So aren't our revenues based on net gaining revenues? And what would be the revenue benefit if the conditions were to return to normal?

[Jake Henson, executive]

Yes. Thanks, Jane. I think the way to look at that is your net costs, I guess, brings the gap between gross and net from a wagering perspective, are relatively fixed. These could cover things like the GST or the point of consumption tax or fees paid to racing and sporting bodies sort of [indiscernible] control, I guess, as an operator and as if someone who facilitates that operators being is the gross margin you make on the bets actually struck. So therefore, that becomes the primary focus for us is helping the operator with the parts that they can control directly, be that more efficient pricing and risk management, et cetera.

I think to cover off on that second piece, we would deem any sort of increases in margin to be material, but they're also beholden to what happens at the net level and the macro factors. So I mentioned point of consumption, product fees and taxes can go up as well. All these things will factor into how the operators position their product in the market and then further to that, what products they position in the market. So I think going forward, as those taxes normalize a little bit, I think operators will invest heavily in higher-margin products. And we've seen that shift in sports and racing through the introduction of an game and same race multi over the last 6 to 12 months.

[Jane Morgan, executive]

Thank you. Just quite a few questions coming through from jumping around. So Jake, another one for you, actually. So looking at the better product, it's still a lot lower than other competitors, so it's being worked on?

[Jake Henson, executive]

The platforms under 24/7 development at this stage. So not only is in a production state, we're certainly not content of where it's at. And we knew they run a journey to develop it into the Tier 1 global product it needs to be. So certainly, everything gets benchmarked, everything from the user experience, to page load times, the product offering, to speed of prices, everything. So certainly, we're aware of certain bridges we need to close, and that's what we're committed to doing.

[Jane Morgan, executive]

Thanks, Jake. Another one for you. So can you comment on the potential Bettor acquisition of PointsBet on Australian business? And what would that make a bet?

[Jake Henson, executive]

Well, look, I can't comment directly for obvious reasons, any conversations between those two parties. I think it's important to point out that both PointsBet and Bettor are existing customers of us on different levels. Certainly, two customers we're cheering for in their respective markets they operate within. I think this question was geared to more on the Bettor. The one thing I can point out is our arrangement covers a broad range of services, including our platform trading and management. And these could be extended, should they complete any form of M&A in the future, be that in their current conversations or future.

[Jane Morgan, executive]

Thanks, Jake. One for you, Todd. So can you provide an update on the U.S., particularly on the fixed odds market, another one that comes through. So is one with bets still on track to launch mid-2023?

[Todd Buckingham, executive]

Yes, we expect the digital platform to launch in the early part of this year. Again, I think the center question comes through there in relation to Caymanas as well. So the focus for me moving forward in my new role is to get these products out into the market faster and so to execute on these opportunities in a more timely fashion. And we'll have our own little team that is there to be efficient and a lot more agile. And so the expectation is that we'll be launching Monmouth Bets before they before they start the season in May and then that will be leveraged into Caymanas bets as well. That then creates, obviously, opportunities around once you got these products in the market, then we can leverage that into our other customers and other markets as well, which again will be a focus to bind moving forward.

[Jane Morgan, executive]

Just another one here. So when can we expect the rollout of a horse betting product from that for the Tier 1 online operators in the U.S.?

[Todd Buckingham, executive]

It comes down to, obviously, the challenges that we've had in GRM regulation legislation. And obviously, they're content owners as well. I think the Monmouth Bets out in the market with more content than just with just Monmouth Bets at the moment. We've just been bidding on New Jersey content within New Jersey on track. And so to be able to then open that up so that we can have an online mobile and web version, where customers in New Jersey can bet on any content around the world. We'll open the eyes up to obviously the operators then to be able to offer a really compelling racing product.

[Jane Morgan, executive]

A few questions just on New York. So how confident are we that fixed odds is being approved in New York?

[Todd Buckingham, executive]

Look, New York's not a bridge is going through the legislative process and -- which is similar to what we went through in New Jersey. The positives out of it, Colorado has gone through that already and still working through getting to where it needs to be. New York, obviously, implementing legislative bill to get passed. It is gathering momentum over there. We're cheering for horseracing, fixed odds on horse racing and any horse racing in particular, to obviously accelerate in the U.S. market. We've got our flag in the ground over there. We believe that we're in at the ground level. Horse racing, we believe will evolve and quite rapidly. And so this is just another stepping stone of what needs to happen. So it's a little bit to go in New York, but obviously, the wheels are moving.

[Jane Morgan, executive]

I've got another one a few years. So you noted the launch of Global Tote hub. Which bookmakers are currently betting into this and what calls are they getting into?

[Todd Buckingham, executive]

Yes. So the Global Tote hub is set up for our Tote customers. We've got a number of customers around the world who are small, large all shapes and sizes, but predominantly pari-mutuel betting. Global Tote is a pari-mutuel product. And so being able to distribute international content into other markets has been a challenge for racing bodies and rights holders for a number of years. We're uniquely positioned that we now have access to content, and we own our own tote, and we also have customers around the world that bet pari-mutuel.

So it makes sense that we can join these together and create a network where the totes meet the content. And then it's a pipeline then for other people to bring in their content and other operators to jump onboard. So while it's in its early stages, all the pieces of the puzzle are there. It's now live. We're doing some small transactions there. But the exciting thing for us over the next 6 to 12 months is being able to put those pieces together and introducing our customers into our content that we got.

[Jane Morgan, executive]

Another one that's come for you. So what is the expecting betting turnover of fixed on in Jamaica?

[Todd Buckingham, executive]

Look, we're seeing some really good traction there. Again, we've only launched betting on Caymanas Park. So where the turnover on track has actually exceeded the pari-mutuel turnover. And ironically, it's actually increased pari-mutuel turnover as well. So it's created a lot of interest. So in a very early embryonic stage. What we are excited about is then providing the digital platform where, again, people in the Caribbeans can actually bet on all content in a regulated form of fixed odds from content around the world. So getting racing bodies and rights holders access to that market now in a regulated sense from -- in a digital and access to those clients is what we're going to be focusing on.

[Jane Morgan, executive]

Thank you. Todd, One for you, Jake. So how is the Caesars pari-mutuel system going with the rollout? And is this showing the account yet?

[Jake Henson, executive]

Yes. The product is now live in Iowa and working really well. Obviously only represents a small percentage of the cities is global reach. What I can say is we're currently going through that licensing and approval process in Nevada, which sees largest market globally. So we're working actively with customer and regulator to get that completed. It is a process, but it's obviously something that is well worth the investment given their reach in state. So we look forward to getting that done this year.

[Jane Morgan, executive]

Thank you. There's one for you, Matt. Let's talk about where a bet, sorry, rather hasn't met its expectations and the opportunity for the platform created by bet to be translated into other markets, including the U.S.?

[Matthew Davey, executive]

Look, I think that's a great question. Better has been a success on pretty much every metric you can look at. I think everybody who's been associated with that has been incorrectly proud of the results, both from the team run by Andrew and as well as from the support from of Betmakers team to achieve probably the best launch we've seen in Sterling history. In terms of the technology and the platform, I think this is one of the huge opportunities for the company.

One of the challenges for new emerging technology platforms and the sports betting business is to prove that you can handle a Tier 1 operator. The issue there is sports betting is event driven. And so when you need the platform to operate is on the largest sports betting event days of the year. And that's difficult for operators to trust in the new platform until I've seen that actually prove it. So it's a bit of a cash 22. Here, BetMakers has established a Tier 1 operator in the Australian domestic market, and we can take those results and use those as part of our sales and marketing campaigns for Tier 1 operators internationally, and I think that's a great opportunity for the business.

[Jane Morgan, executive]

Matt, I'm going to stick with you, there's one here for you. So where do you see the biggest opportunities for Betmakers over the next 2 years?

[Matthew Davey, executive]

Look, I think we have articulated those in the press release as well as in the opening today. Opportunity one, we need to demonstrate that we have the ability to show the operating leverage in the business. We need to be able to show good, strong cash flow generated from operations and strong EBITDA margins that are commensurate with $100 million plus top line revenue business.

The second is we have some amazing blue sky growth opportunities that Todd and the team will be focused on. Those are around fixed odds betting on racing in particular. That's not just U.S., so that's truly an international product. The vast majority of wagering on racing around the world is on a pari-mutuel basis today. And we know through our experience in the Australian market, that fixed that product type is incredibly attractive to the consumer base.

And the second is around Global Tote. Nobody is in the market with a product like we have and it has the ability to scale that product like we can. So those are the three kind of key levers that I think if we execute well on those, we will deliver fantastic results for our shareholders, and that will be reflected in the performance of the business and the way the market views us.

[Jane Morgan, executive]

Thank you, Matt. Nick, I'm going to direct this one to you. So as the AGM [indiscernible] to suggest that Betmakers was looking at an acquisition, is there anything on the horizon? And then secondly, is there a plan to pay a dividend?

[Nicholas Chan, executive]

There's no plans to pay a dividend at this stage. But obviously, that goes towards -- that's for Board consideration at any point. And while we're still in this growth phase, I don't believe that, that's appropriate. Sorry, what was the first question, Jane? In terms of acquisition?

[Jane Morgan, executive]

Yes.

[Nicholas Chan, executive]

I think Matt has already commented on that. I think we'll look at -- we, as a Board, and then Matt and the team as executives will always look at opportunities that are accretive to our business. But at this point, we believe we have a platform and a foundation that can deliver revenue growth and profit growth without necessarily through acquisition.

[Jane Morgan, executive]

Thank you, Nick. I think got one for you. So can you explain where the $1.4 million was generated from Better in the previous quarter? And how will we be paid for better going forward?

[Jake Henson, executive]

Yes, sure. The Better contract is structured as a main revenue ourselves. And with that [indiscernible] effectively in the range of revenue we can generate from that each year. At the moment, we're sitting at the floor, which is $7.5 million per annum. The $1.4 million is just reflecting 2 months' worth of receives from those guys. And that's just simply a timing difference between are during quarter.

[Jane Morgan, executive]

Direct response for you. So cost of support in eat are over 70% of receive. This is not sustainable. What is the Board and executives going to address that?

[Anthony Pullin, executive]

Sorry, I thought you said costs at the start of that, yes?

[Jane Morgan, executive]

I did, yes.

[Anthony Pullin, executive]

Yes. So 35% just completed and more specifically the quarter, we obviously had to make significant investment -- and that investment was tied to be necessary for the next step. When they take the next step, that is to deal with Tier 1 customers on a global basis and things like the development of the new technology, [indiscernible]. And for us, that next step required the investment, but we think it was to move from certainly as a business and a management executive, we're well aware that cost of spending, particularly in the current macro environment. There's a high focus. And our next 6 months, we'll see a dive back in that area and increased oversight and focus as we start to get to a more mature state with those products and investment that we would in last year. So that's a comment being across the board from management. And obviously, in that appointment that some good he'll be overseeing as well with his insights into the capital markets.

[Jane Morgan, executive]

Thank you. Jake, I might take this one to you. So there's been a little to no inside of buying. Can you speak to that, please?

[Matthew Davey, executive]

Having not been in inside for some time, it's probably not appropriate for me to that about that at this point. Look, suffice to say, I think that the stock looks like fair value to me and certainly have been a net buyer over the last 6 months. And I think we should stay focused on what we can control it as executives, which is really driving the operating leverage in the business and focusing on the key growth opportunities as and how we end up acquiring more stock. I think we will obviously make the right kind of public statements as and when that happens.

[Jane Morgan, executive]

Thank you, Matt. Todd, perhaps one for you. So where is on incentives to grow the business he's bought by a significant amount of performance shares. And so if you're still committed to the business?

[Todd Buckingham, executive]

Yes, I certainly am committed to the business. So I've got a number of shares that are quite along the way. So it's obviously a company that I've got a lot of passion about. I want to see it succeed. I think we've got the right structure in place now to help to help us achieve that. I'm certainly committed to the business. I'm excited about working with Jake and Matt into the future. And I think we'll do some good things.

[Jane Morgan, executive]

Wonderful. Well, thank you, gentlemen. We've actually run over time now. Matt, I might hand over to you just to do any closing statements.

[Matthew Davey, executive]

Thanks, Jane. Look, thanks, everyone, for your time today. And appreciate the business has grown rapidly over the last couple of years. It's been quite the journey and really find people get enthusiastic about the business and then they get somewhat depressed about the business, and that's quite a cycle. Where we're at today is in Rude Health, a $100 million plus in revenue, zero debt, tens of millions of dollars of cash on the balance sheet in a time where the value of cash is significantly higher than it has been over the last couple of years.

We have an excellent management team and we have some phenomenal assets inside the business, both domestically in Australia as well as internationally. So I think the business is incredibly well positioned. We have exactly the right set-up you'd want for a business that is set for significant growth. I think we have a very clear path in front of us to deliver on that, and we look forward to reporting back to you as shareholders over the next couple of years, certainly over quarter-by-quarter as we execute on this ones.

So with that, I'd like to thank everyone for their time.

[Jane Morgan, executive]

Yes, and thank you, everyone, for joining us today. Should we have missed any questions, please feel free to reach out by the contact details on the bottom of our ASX releases. Thank you again.